US Banks Don’t Expect Much Impact From Russia Sanctions

American banks do not expect to see an impact on their business – or wider risk contagion – due to the sanctions the U.S. and other nations are levying against Russia over the crisis in Ukraine, Reuters reported Tuesday (Feb. 22).

Sources inside the banking industry said that U.S. banks significantly lessened their exposure to Russian’s economy after that country annexed Crimea in 2014.

President Joe Biden announced the sanctions on Tuesday (Feb. 22), saying they would worsen if Russia pushed further into Ukraine.

The sanctions apply to VEB bank and Russia’s military bank, Promsvyazbank. Biden told reporters Tuesday (Feb. 22) the sanctions against Russia’s sovereign debt would cut the Russian government off from Western financing.

Read more: Biden Mulls Barring US Banks From Processing Transactions From Russian Banks

As PYMNTS reported earlier this week, the sanctions are designed to strike a blow against Russia’s economy by taking away the “correspondent” banking relationships between its banks and financial institutions in the U.S.

The U.S. will also put some Russian individuals and companies on the Specially Designated Nationals (SDN) list, which would essentially block them from the U.S. banking system entirely by preventing their trade with Americans and freezing their assets in the country.

While the correspondent banking measure wouldn’t be as powerful as the SDN designation, banks could still be hurt if it is harder for them to deal in U.S. dollars, as it is the global reserve currency and a bulk of global trade is carried out in dollars.

“Since a significant number of global trade transactions are in U.S. dollars this is a sanction with bite, but without the more complicated and deadly sanction of being placed on the SDN list and having all assets in the U.S. or in the hands of U.S. persons frozen,” Washington lawyer Kay Georgi, an expert in international trade, told Reuters Monday (Feb. 21).